Historical GDP growth rates

these figures are very thought-provoking.

Forget the current situation where we have seen a significant change in the GDP figures, but nations rely on a very long history to develop. Patents. Universities. Infrastructure. Dams. Irrigation Networks. Institutions. All those help and have a very long chain. 

Look at the UK, its growth rate was extraordinary and that is what provides you hope that the UK will prosper and develop much more. It will have to rely on the institutions, infrastructure, universities to keep on developing further. 

How Sharia Courts actually lead to lack of industrial development

this was a fascinating paper. I never figured that this could be a reason behind the Arabic world falling behind in industrial development...there you go, one more reason to consider having secular commercial courts. 

I quote

The courts of 17th and 18th century Istanbul were Sharia courts grounded in Islamic law and tradition, not unlike the courts that are gaining sway in today's Middle East. At the start of the project, Kuran and co-author Jared Rubin of Chapman University knew the courts were heavily biased in favor of men, titled elites and Muslims. By contrast, they strictly punished women, commoners and religious minorities such as Christians and Jews.
Yet as he reviewed the records, Kuran noticed that the very groups the courts favored -- Muslims, men and high-status individuals -- paid significantly higher interest rates for loans. Conversely, society's less fortunate -- women, commoners and religious minorities -- paid lower interest rates.
The reason? Because the courts went easy on Muslims, men and titled elites, lenders could not count on recouping their money and loaning to those groups became a high-risk proposition. Lenders responded by charging privileged individuals higher interest rates to cover their risk.
"The biases of the courts made it risky to lend to privileged groups," Kuran says. "The courts gave privileged groups incentives to break contracts. Judicially favored groups paid more for credit precisely because their promises were relatively less credible."
Men in particular paid significantly higher interest rates than women -- as much as 26 percent more, the study states. Women represented a better credit risk precisely because courts held them accountable, Kuran says. Also, women of the time were not free to travel alone, much less flee their creditors. Men, by contrast, represented a flight risk.
The findings help shed light on the contemporary Middle East, Kuran says. For one, they help explain why the once-prosperous region fell behind Europe economically, a lag from which the region is still recovering, he says.
As the Industrial Revolution took off in the 18th and 19th centuries and factories began springing up across Britain and Europe, access to capital became increasingly important, Kuran says.
Across Britain and Europe, industrialization was financed by wealthy investors who could secure large loans. Istanbul was a thriving commercial center at the time. The high interest rates faced by the city's elites help explain why a similar industrial expansion was slower to take root there.
"To succeed in mass production, one needed much more capital than in the past," Kuran says. "So it became a handicap to face very high borrowing costs."

Behold the ‘lowest rates in 5,000 years’

read and wonder.

The Bankrupt Irishman Who Created the Dollar Sign by Accident

This was such a fascinating story kids. But I have a sneaky admiration for the man. He did his bit hugely. And despite him being declared bankrupt, he kept on working. Without him, the USA or the dollar sign wouldn't have happened. 
Such an interesting episode and historical factoid. 
Love
Baba



The Bankrupt Irishman Who Created the Dollar Sign by Accident
http://www.atlasobscura.com/articles/the-bankrupt-irishman-who-created-the-dollar-sign-by-accident
(via Instapaper)

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The only known depiction of Oliver Pollock, in Baton Rouge, Louisiana. (Photo: Richard Cummins/Alamy)

Wars cost money. So when the Revolutionary War broke out, the Colonies turned to a number of sources for backing. The top contributors to America's Independence: The Kingdoms of France and Spain, the Dutch banking conglomerate, and a single Irish merchant based in New Orleans. His name was Oliver Pollock, and he was the "Financier of the Revolution in the West."
Pollock saw opportunity in war– the chance for a young but wealthy immigrant to stand as a symbol of success and greatness. He desired to carve out a place for himself in America's financial landscape and perhaps even leave a mark in the nation's history. He achieved all those things. Just not in the way he expected.

Why 'secular stagnation' matters

Kannu

A fascinating debate has been running over the past 3 days. Read this little article to get a summary. 

I've got another point here. People aren't including the impact of technology and automation. More technology and automation and more the economic activity goes outsides the purview of economic levers. 

Secondly, why isn't there any mention of productivity? After all, if you can improve productivity by doing more investments and education, then secular stagnation can be addressed. 

Anyway. Fascinating minds at work son. Hugely influential and amazing debate. Reminds me of the time I read the proceedings of the Bretton Woods agreement. Keynes was the guru then. 

Love

Baba

I saw this on the BBC News App and thought you should see it:
Why 'secular stagnation' matters

A debate between three major economists highlights a key macroeconomic issue.

Book Review: The Panama Hat Trail

In my experience, travel books have a built in advantage, the reader is already pre-disposed towards the destination so even crap books get a bit of a bye. But even adjusting for that factor and the fact that I am an idiot, sometimes a book comes along which is a sheer pleasure to read.

this book by Tom Miller, first published in 1986, takes you through a journey behind the Panama Hat which is made in Ecuador. He has a fascinating way of describing the country, the Indians, the regular moans about coffee, the issues with the traffic and bus travel, he describes the hat, Gosh, he describes the hat process. The man ends up in the depths of the forest to pluck the particular straw and then moves through entire supply chain from those depths of the forest down the history, geography, religion, culture, anthropology, economics of Ecuador to the showrooms in New York where these Panama Hats, now revalued hugely from the original price of literally cents to the farmers of the straw to the hundreds of dollars that a purchaser of a Montecristo Fini hat will pay. Some of these straw hats are so finely woven that they can hold water.

Amazing book. I learnt so much about the country. Like India, it also lost huge swathes of territory and does stupid nationalistic things like map controls (you cant show the land that Ecuador lost in the war with Peru). And I now have to go check out the bookstores in Quito, found out there are two there which stock English language books besides the usual fiction pap. And the man has a sense of deprecating humour which is lovely and refreshing. Loved it.

And it doesn't talk about Galapagos at all. So as a very respected member of the travel book species, it comes very highly recommended. One of the best books that I have read. So much that I recommended it to my son, whose response was a gratifying “ummm, ok”

Copper Sheathing helped save lives in an ass backward way

fascinating paper here.

British slave traders were early and rapid adopters of the new technique of sheathing ships' hulls with copper. From the 1780s this innovation increased sailing speeds of British slave ships by about a sixth, prolonged the ships' lives by at least a half, and reduced the death rates of slaves on the middle passage by about half. It was, above all, the fall in death rates, and possibly the improved condition of surviving slaves, that made the investment so compelling. Copper sheathing may have paid for itself in a single voyage, even though it was usually good for several. By the 1790s few slave ships, even if making only a single voyage, were uncoppered. These results confirm that copper sheathing was one of the major improvements in shipping productivity before the use of iron and steam in the mid-nineteenth century.

I am not sure if this would be really that appreciated by the slaves, what would you prefer? an agonising death on the slave ships or a life of slavery?

one thing which I have read about slave ships is how the British squadrons came to know about the slave ships. Besides intelligence and beating about the mouths of African rivers to capture the slavers, they used the power of smell. Slave ships were extremely odorous. truly disgusting, specially on the trans Atlantic voyages or up to Europe. first, the slaves would be chained down spoon fashion for the voyage. they would be crammed in tightly as a sardine in a can, with multiple decks. layer after layer after layer. they wouldn't be fed that frequently either. They will piss, shit, vomit, sweat, drip blood, die, all in the same area. if they were lucky,they were brought up to be given a drenching in the cold sea water, but no captain would risk a mutiny or rebellion so death rates of up to 50% were accepted.

so anything that reduced the voyage time, would help increase the survival rates…

here are some of the photographs from our visit to Portsmouth…you can see the photograph showing the shelf in which you as a slave will be curled up in chains for 2 weeks, the gaps in the wood will let all the bloody fluids and sewage from top drop on you.

Do Elections Matter for Economic Performance?

Do they? do you feel lucky punk? go on, elect your leaders in a corrupt election, make my day

In mature democracies, elections discipline leaders to deliver good economic performance. Since the fall of the Soviet Union, most developing countries also hold elections, but these are often marred by illicit tactics. Using a new global data set, this article investigates whether these illicit tactics are merely blemishes or substantially undermine the economic efficacy of elections. We show that illicit tactics are widespread, and that they reduce the incentive for governments to deliver good economic performance. Our analysis also suggests that in societies with regular free and fair elections, leaders do not matter for economic growth.

that’s the key thing which so many people don't understand, they put their faith in single charismatic leaders and forget about institutions. While leaders do matter to some extent, but if you have regular free and fair elections where leaders are held to account, the leaders tend to focus on making their people better via economic growth. Look at India, the development story always helps. In the UK, the morons in the Labour govt starting with that blithering nincompoop Gordon Brown was thrown out when they screwed up the economy something bad.

good paper.

How can one of the richest nations be so poor?

Spain is a strange country, at least from an economic perspective. It earned tons of money, had high education, etc. etc. See here, here and here for some more information on this.

But still ended up in comparative poverty. Why? This article explains a bit more on the history behind this issue.

The timing of and reasons for Spain's decline have been subjects of ongoing debate since Earl Hamilton's seminal contribution, and attempts have been made at quantifying Spain's relative position over time.² It has recently been suggested that Spain had attained affluence prior to its American expansion, and that this increased throughout the sixteenth century, so that by 1590 it was among the top countries in Europe in per capita income terms.³ This finding raises the crucial question of when, and why, Spain achieved such early prosperity.

This article provides a tentative answer by examining Spain's comparative performance over the half-millennium between the end of the Reconquest (1264) and the beginning of modern economic growth by the mid-nineteenth century.⁴ It proceeds, first, by estimating trends in output. Specifically, movements in agricultural output are drawn using an indirect demand approach (section II), while those in industry and services are proxied through changes in urban population not living on agriculture (section III). Thus, trends in per capita output over the period 1280–1850 are obtained (section IV).⁵ A re-examination of Spain's relative position within western Europe closes the article.

From our quantitative exercise we conclude that two distinctive regimes appear to exist in preindustrial Spain. The first one (1270s–1590s) corresponds to a high land–labour ratio frontier economy, largely pastoral, trade-oriented, and led by towns. Wage and food consumption levels were relatively high. Sustained per capita growth took place from the 1270s, after the de facto end of the Reconquest (figure 1), until the 1340s, when the Black Death (1348) and the Spanish phase of the Hundred Years War (1365–89) interrupted it. Growth resumed, then, only interrupted by late fifteenth-century political turmoil. The second regime (1600s–1810s) corresponds to a more agricultural and densely populated, low-wage economy, with growth occurring along a lower path.

Thus, Spanish relative affluence by 1492 can be tracked down to the pre-Black Death era. Unlike most of western Europe and the eastern Mediterranean, where the highest standards of living of the pre-industrial era were achieved after recovering from the plague by the mid-fifteenth century, in Spain the peak level of output per capita was reached in the 1340s. In pre-plague Spain, Malthusian forces were mostly absent except for a few, if any, areas along the Mediterranean coast. Sustained progress took place after the Reconquest in the context of a frontier economy, urban expansion, and openness to trade. Although its death toll was lower, the plague had a much more damaging impact in Spain than in western Europe since, far from releasing non-existent demographic pressure on land, it destroyed the equilibrium between scarce population and abundant resources. Pre-Black Death per capita income levels were temporarily recovered by the late sixteenth century, but were only exceeded after 1820.

Thus, the fall in output per capita in the late fourteenth century and, again, in the early seventeenth century represent two major steps in Spain's (absolute and relative) decline. Later, in the early nineteenth century, although demographic expansion was paralleled by an increase in GDP per capita, paradoxically the relative decline of Spain deepened.

So the plague was to blame for some of Spain’s issue with economic growth. Still no clear answer and needs much more analysis, I am afraid.

Wages, prices, and living standards in China, 1738–1925: in comparison with Europe, Japan, and India

This was the formative years of modern democracy. So the economic background to these years is important, as a matter of fact, the authors actually analyse the wages, prices and living standards in various countries over this period with reference to what the great old man, Adam Smith, thought. I quote the conclusion:

Our investigation of Asian and European wages and prices shows that the situation differed somewhat from Adam Smith's impressions. Money wages were in accord with his view: in China, they were certainly lower than wages in the advanced parts of western Europe in the eighteenth century and similar to those in the lagging parts of Europe. By the twentieth century, however, wages in all parts of Europe were higher than in China. Contrary to Smith, the cost of living was similar in China and in Europe in the eighteenth century.

The upshot of the wage and price comparisons is that living standards were low in China. In the eighteenth century, advanced cities like London and Amsterdam had a higher standard of living than Suzhou, Beijing, or Canton. The standard of living in the Chinese cities we have studied was on a par with the lagging parts of Europe, the Ottoman Empire, India, and Japan. By the twentieth century, enough progress had occurred in even the backward parts of Europe that their standards of living were beginning to creep above those in China. Wages seemed to have slipped in China in the eighteenth century. Still, most of the difference between Europe and China in 1913 was due to European advance rather than Chinese decline.

In spite of the above, a major surprise is our finding that unskilled labourers in major cities of China and Japan—poor as they were—had roughly the same standard of living as their counterparts in central and southern Europe for the greater part of the eighteenth century. This calls into question the fundamental tenet of the large ‘rise of the west’ literature that sees western Europe—as a whole—surpassing the rest of the world in the early modern era. Our article suggests that it was only England and the Low Countries that pulled ahead of the rest. The rest, in this context, includes not only Asia but also much of Europe.⁵²

In this regard, Adam Smith neglected regional variation and thereby over-generalized the comparison of Europe and China. But our findings also dispute the revisionists' claim that the advanced parts of China, such as the Yangzi Delta, were on a par with England on the eve of the industrial revolution, for we find real wages for unskilled labourers in the Yangzi Delta to have been no higher than those in Beijing or Canton. Clearly, our database on China could be greatly improved and we do not claim to have given the final answer to this question. Nevertheless, any newly discovered data would have to be very different from what is currently available in order to convince us that pre-industrial Chinese living standards were similar to those in the leading regions of Europe.⁵³ In this regard, Adam Smith's pessimism looks closer to the truth than the revisionists' optimism. Of course, establishing the existence of an income gap between north-western Europe and China in the early modern era only takes us halfway towards the resolution of the great divergence debate. The search for a causal explanation of the great divergence still looms large as a future research agenda.

Much to think about but let me link to one existing situation. People complain about stagnating wages/incomes in so many OECD countries. See here, here, here and here for some examples. And this too over one decade or so. But China saw wage stagnation for a very long period of time. Not only that, vast swathes of Europe was also stagnant for many many moons. So it is of interest when people claim that the West rose on the back of the industrial revolution, erm, no, only the low countries and UK rose.

crucially, the lesson to be learnt from here is to focus on productivity. USA does brilliantly on productivity, we in the UK and India are crap at it. We do not educate our folks well enough, we are not innovative enough, we do not use technology enough, and we do not encourage investment enough. Bah!

Wages, prices, and living standards in China, 1738–1925: in comparison with Europe, Japan, and India

This was the formative years of modern democracy. So the economic background to these years is important, as a matter of fact, the authors actually analyse the wages, prices and living standards in various countries over this period with reference to what the great old man, Adam Smith, thought. I quote the conclusion:

Our investigation of Asian and European wages and prices shows that the situation differed somewhat from Adam Smith's impressions. Money wages were in accord with his view: in China, they were certainly lower than wages in the advanced parts of western Europe in the eighteenth century and similar to those in the lagging parts of Europe. By the twentieth century, however, wages in all parts of Europe were higher than in China. Contrary to Smith, the cost of living was similar in China and in Europe in the eighteenth century.

The upshot of the wage and price comparisons is that living standards were low in China. In the eighteenth century, advanced cities like London and Amsterdam had a higher standard of living than Suzhou, Beijing, or Canton. The standard of living in the Chinese cities we have studied was on a par with the lagging parts of Europe, the Ottoman Empire, India, and Japan. By the twentieth century, enough progress had occurred in even the backward parts of Europe that their standards of living were beginning to creep above those in China. Wages seemed to have slipped in China in the eighteenth century. Still, most of the difference between Europe and China in 1913 was due to European advance rather than Chinese decline.

In spite of the above, a major surprise is our finding that unskilled labourers in major cities of China and Japan—poor as they were—had roughly the same standard of living as their counterparts in central and southern Europe for the greater part of the eighteenth century. This calls into question the fundamental tenet of the large ‘rise of the west’ literature that sees western Europe—as a whole—surpassing the rest of the world in the early modern era. Our article suggests that it was only England and the Low Countries that pulled ahead of the rest. The rest, in this context, includes not only Asia but also much of Europe.⁵²

In this regard, Adam Smith neglected regional variation and thereby over-generalized the comparison of Europe and China. But our findings also dispute the revisionists' claim that the advanced parts of China, such as the Yangzi Delta, were on a par with England on the eve of the industrial revolution, for we find real wages for unskilled labourers in the Yangzi Delta to have been no higher than those in Beijing or Canton. Clearly, our database on China could be greatly improved and we do not claim to have given the final answer to this question. Nevertheless, any newly discovered data would have to be very different from what is currently available in order to convince us that pre-industrial Chinese living standards were similar to those in the leading regions of Europe.⁵³ In this regard, Adam Smith's pessimism looks closer to the truth than the revisionists' optimism. Of course, establishing the existence of an income gap between north-western Europe and China in the early modern era only takes us halfway towards the resolution of the great divergence debate. The search for a causal explanation of the great divergence still looms large as a future research agenda.

Much to think about but let me link to one existing situation. People complain about stagnating wages/incomes in so many OECD countries. See here, here, here and here for some examples. And this too over one decade or so. But China saw wage stagnation for a very long period of time. Not only that, vast swathes of Europe was also stagnant for many many moons. So it is of interest when people claim that the West rose on the back of the industrial revolution, erm, no, only the low countries and UK rose.

crucially, the lesson to be learnt from here is to focus on productivity. USA does brilliantly on productivity, we in the UK and India are crap at it. We do not educate our folks well enough, we are not innovative enough, we do not use technology enough, and we do not encourage investment enough. Bah!

Tax Farming and the Origins of State Capacity in England and France

Fascinating comparison.

How did modern and centralized fiscal institutions emerge? We develop a model that explains (i) why pre-industrial states relied on private individuals to collect taxes; (ii) why after 1600 both England and France moved from competitive methods for collecting revenues to allocating the right to collect taxes to a small group of financiers—an intermediate institution that we call cabal tax farming— and (iii) why this centralization led to investments in fiscal capacity and increased Fiscal standardization. We provide detailed historical evidence that supports our prediction that rulers abandoned the competitive allocation of tax rights in favor of cabal tax farming in order to gain access to inside credit, and that this transition was accompanied by investments in standardization. Finally (iv) we show why this intermediate institution proved to be self-undermining in England, where it was quickly replaced by direct collection, but lasted in France until the French Revolution.

You know something, whenever I hear people fulminating about bankers and credit and and and, I just feel sad. More life changes, more it remains the same. The situations we are going through has been seen before, quite a lot of times. People forget that once taxation goes through the roof, people do tend to revolt. Typically, its the rulers (governments in today’s parlance) who usually bugger up the economy and then go for the tax take to try to make up for those stupid policy decisions. But the British were better at this, one of the reasons why we are still celebrating the birth of Prince George while the French are, well, French.

John Stuart Mill

Kannu

You want to study economics. Excellent. But remember that some other fields of study are inextricably linked with this son, like politics, history, anthropology, environmental studies, psychology, etc. anything to give you more insight into resources and behaviour. 

Here's an overview of John Stuart Mill son. One of my heroes. He trawled and wrote on all the subjects mentioned above son. Brilliant fellow. Another person like this was Raja Ram Mohon Roy but will speak about him later. 

Love

Baba 

John Stuart Mill - Wikipedia, the free encyclopedia
http://en.wikipedia.org/wiki/John_Stuart_Mill

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, FRSE (20 May 1806 – 8 May 1873) was an English philosopher, political economist and civil servant. He was an influential contributor to social theory, political theory, and political economy. He has been called “the most influential English-speaking philosopher of the nineteenth century”.^[3] Mill’s conception of liberty justified the freedom of the individual in opposition to unlimited state control.^[4] He was a proponent of utilitarianism, an ethical theory developed by Jeremy Bentham. Hoping to remedy the problems found in an inductiveapproach to science, such as confirmation bias, he clearly set forth the premises offalsification as the key component in the scientific method.^[5] Mill was also a Member of Parliament and an important figure in liberal political philosophy.

Some reflections on the financial crisis

I was thrown into the wolves yesterday. In an academic conference full of economics, finance, politics, philosophy and journalist professors from across the world, this uglyass suited fat old git of a banker shambled in and decided to bollox up their lives. Apparently, for the past three years, they were debating how to fix the finance sector and then decided to invite me in to discuss the financial crisis, (i) what has gone wrong, (ii) what needs fixing, and (iii) how to put things right. Here are some thoughts.

• Andrew Lo compared the search for reasons and fixes to the Financial Crisis to Rashomon, I would much rather talk about the Blind Men of Hindoostan. We are observing this from London, so the reasons are bit broader than what has been summarised nicely by Andrew Lo and others.
• What's the problem and what's a symptom? Low interest rates? loose fiscal and monetary policy? housing bubble? subprime mortgage issues? liquidity and solvency issues? originate to distribute? fraud? reward and compensation policies in investment banking? repeal of Glass Stegal? Hubris? Too big to fail? regulatory failure? corporate governance? capital structure discussions - preference setting off debt against tax versus equity, regulatory capture and political contributions, inequalities? global capital imbalance and the dollar as reserve currency? govt push for housing - Freddie and Fannie mae, BSDs and Masters of Universe, risk transfer and risk management policies?
• What needs fixing? All of the above
• How to put things right? capital adequacy - Basel III, recapitalisation of banking system, the breakup of investment and retail banks - reintroduction of glass steagal, improved regulatory oversight, changes in comp policy, CoCo bonds, living wills, shrinking banks, etc. etc.

The above were my notes. So after the initial discussions, then questions came fast and furious. Im afraid I was very disruptive. Somebody asked me if the additional regulations were appropriate. I said, yes, the answer is yes. Is it going to avoid another crisis? No, its like saying passing laws against murder and theft will stop murder and theft. Plus all those regulations are actually increasing the possibility that there will be less money to go around.

A professor asked me, what should we teach our students? I said, I don't know about students as I am not a full fledged academic, but I look at my son and tell you the four things I taught him

1. How to survive on his own, cooking, killing, hunting, growing vegetables, DIY, etc.
2. Personal financial management, how to manage his own finances and how to be self sufficient, prudent with money, etc.
3. I have taught him that he needs to have a technical skill, something that he can rely on somebody paying for that all through his life. That can be coding, that can be accounting, that can be engineering, that can be copywriting, something that somebody can and will pay for what you do. If nothing else, learn to dig ditches.
4. Finally, learn how to sell. Everybody sells. Everybody. Some sell services, some sell ideas, some sell products, some sell themselves. Everybody needs to learn how to sell.

The last thing pisses me off, why don't business schools teach selling? eh? eh? There are about 150 business schools here in the UK. Do you know how many business schools teach sales? THREE. Warwick, Cranfield and Portsmouth. WTF? What do you think business is if its not revenue generating and selling? MORONS! I met with some people in Cranfield and I was pleasantly surprised to note their lovely sales programme. I am going to do something with them..

But the bottom line I told the conference. Remember that banking is an intermediary. And stop ascribing morality to economics. It takes money from people who have excess and gives it to who need it. If you want to reform it, then remove the need for banking.

When people were fulminating about derivatives, I asked a question, how many people here have insurance? Why are you taking insurance? Go home and stop taking insurance. If you cant, then dont fulminate against other people who are looking to protect their assets. But but, you cant slice and dice and and and. I said, you guys are confusing the underlying desire to protect with an instrument. Its like saying you need to ban ferraris because they drive too fast. That’s not going to change the underlying need to protect. People will find some other way to protect themselves.

Then I scared the crap out of them and said, you guys are all having academic pensions and think you are safe from the markets, eh? Let me wake you up, each and every one of you is going to have a poor retirement because there is no money in the pot. The deficits will be made up by the governments squishing your returns and asking you to pay more and work longer. That scared the crap out of them. heh.

My final point was, let the market be (I said I was a libertarian and that prompted some air whistling through the teeth and when I said that that was based on my religious principles – my Indian heritage tells me that I am responsible for my salvation through my deeds – that confused the heck out of these chaps, lol, they cant really complain about my religious beliefs while being against the tea party like / ayn ryandian individual rights business..hehehehehe). You complained about structured products, well, the crash made sure that pretty much a majority of people making and selling structured products have lost their jobs and the products arent there.

But bottom line is, we cannot live like this, spending too much, consuming too much. I said that we are heading for another crash as every sector of the economy, individual, household, corporate and government is trying to deleverage, so there is no demand. Don't assume that the business cycle is banished. So demand zero. ANy external shock like war or natural catastrophe is going to screw up our lives. Which I will welcome, I am hoping for a crash. Pretty much, I am happy to plonk down some money that in the next 5-7 years, we will have another crash/recession. And then hopefully people will wake up and reduce spending, reduce demands, reduce consumption, reduce materialism.

Here’s a great cartoon.

So what caused the financial crisis? We don't know

I thought you would be interested in this article written by Andrew Lo. I found this quote fascinating, specially since he managed to pull in Rashomon as a metaphor. (wonder why he missed out on the Blind men and the Elephant metaphor)).

it may seem like sheer folly to choose a subset of books that economists might
want to read to learn more about the crisis. After all, new books are still being published
today about the Great Depression, and that was eight decades ago! But if Kurosawa were
alive today and inclined to write an op-ed piece on the crisis, he might propose Rashomon as
a practical guide to making sense of the past several years.

Here is the abstract, the article is worth reading in full.

The recent financial crisis has generated many distinct perspectives from various quarters.
In this article, I review a diverse set of 21 books on the crisis, 11 written by academics, and
10 written by journalists and one former Treasury Secretary. No single narrative emerges
from this broad and often contradictory collection of interpretations, but the sheer variety of
conclusions is informative, and underscores the desperate need for the economics profession
to establish a single set of facts from which more accurate inferences and narratives can be
constructed.

Coins to Credit Cards, a Short History of Money: Neil MacGregor

Here is an interesting overview of how money has evolved. Here is an even longer wiki article on this. http://en.wikipedia.org/wiki/History_of_money. we also have couple of books on economic history if you are interested in delving deeper into this area.
As you would have noted, the need for money keeps on happening, the channel keeps on changing. Here's another interesting event that i read about yesterday.
http://www.finextra.com/news/Fullstory.aspx?newsitemid=23085
this tiny little application in Kenya is now processing more payments than western union. Which is extraordinary. You dealt with new currencies as well in your world of warcraft game as well.
you will be living in exciting times....
Love
Baba

 

(BN) Coins to Credit Cards, a Short History of Money: Neil MacGregor

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Bloomberg News, sent from my iPhone.

Coins to Credit Cards, a Short History of Money: Neil MacGregor

Oct. 26 (Bloomberg) -- We’ve all grown so accustomed to using little round pieces of metal to buy things, it’s easy to forget that coins arrived quite late in the history of the world. For more than 2,000 years, states ran complex economies and international-trading networks without a coin to hand.

The Egyptians, for example, used a sophisticated system that measured value against standard weights of copper and gold. But as new states and new ways of organizing trade emerged about 3,000 years ago, coinage began to make an appearance. Paper money would not arrive for another couple of millenniums and credit cards, not until the 20th century.

Here are four landmark objects in the history of currency:

Gold Coin of Croesus

“As rich as Croesus.” How many people who use this familiar phrase ever pause to think about the original King Croesus? He was the ruler of Lydia, in what is now western Turkey, and these are some of the original gold coins that made him so rich.

They were minted in about 550 B.C. and came in various sizes, from about the scale of a modern British 1 penny piece or a U.S. nickel, right down to something hardly bigger than a lentil.

In a fascinating coincidence, at almost the same time in history, the Chinese also started using uniform metal pieces in very much the same way that we use coins -- though the early Chinese versions were miniature spades and knives.

The need for money, as we understand it, grows when you go beyond dealing with friends and neighbors whom you can generally trust to return any labor, food or goods in kind, and begin dealing with strangers you may never see again and can’t necessarily trust. That is, when you’re trading in a cosmopolitan city like Sardis.

Before the first Lydian coins, payments were made mostly in precious metal -- effectively just lumps of gold and silver. The shapes didn’t really matter, only how much they weighed and how pure they were. But this was a slow system because, in their natural state, gold and silver are often found mixed with each other and with less-valuable metals. Checking a metal’s purity was a tedious task, likely to hold up every business transaction.

The Lydian state solved this problem by minting coins of pure gold and silver, of consistent weights that would have absolutely reliable value.

The stamp used to indicate weight on Croesus’s coins was a lion, and as the size -- and therefore the value -- of the coin decreased, ever-smaller parts of the lion’s anatomy were used. The smallest coin shows only a paw. Because people could trust Croesus’s coins, they were used far beyond the boundaries of Lydia, giving the king a new kind of influence: financial power.

Ming Banknote

The whole modern-banking system of paper and credit is built on a simple act of faith that occurred in China seven centuries ago: Someone printed a value on a piece of paper and asked everyone else to agree that the paper was actually worth what it said it was.

This is one of those early notes, which the Chinese called “feiqian” -- or “flying cash” -- and it’s from the time of the Ming Dynasty, about 1400. Most of the world until this time was exchanging gold, silver and copper coins whose value could be judged by weight. But the Chinese saw that paper money had obvious advantages: It’s easily transportable and big enough to carry words and images to announce not only its value but also the authority of the government that backs it.

At first glance, this note doesn’t look at all like modern paper money. It’s a velvety gray color, and it’s made of mulberry bark, whose fibers are long and flexible, which is why the note is still soft and pliable after 600 years.

The Ming note also carries on it a government promise of a reward to anyone who denounces a counterfeiter, as well as a terrifying stick for any potential forger: “To counterfeit is death. The informant will receive 250 taels of silver and in addition the entire property of the criminal.”

A threat much bigger than counterfeiting was that the new currency might not hold its value. So the Ming ensured that the paper was equal to the value of a specific number of copper coins. In the middle of this note is a picture of the actual coins it represents: 20 stacks of 100 coins, for a total of 1,000 cash or, as the note says, 1 guan.

You can get some idea of just how welcome this early paper must have been when you consider that 1,000 coins weigh about seven pounds.

However, the exchange of paper for copper -- and copper for paper -- never flowed smoothly. And, like so many governments since, the Ming couldn’t resist the temptation to simply print more money. The value of its paper plummeted, and 15 years after the first Ming banknote was issued, one official noted that a 1,000-cash note like this one had an exchange value of just 250.

Eventually, about 1425, the Chinese government gave up the struggle and suspended the use of its paper money. But the memory lives on in a London garden. In the 1920s, the Bank of England, in conscious homage to those Ming notes, planted a little stand of mulberry trees.

Pieces of Eight

Of all the legendary currencies the world has known -- ducats and florins; groats, guineas and sovereigns -- the most famous of all must be pieces of eight. And it isn’t only thanks to Long John Silver’s parrot that they are celebrated. Pieces of eight were also the first truly global money.

Within 25 years of its first minting in the 1570s, the “peso de ocho reales,” the Spanish piece of eight, spread across Asia, Europe, Africa and the Americas, establishing a worldwide dominance that it would maintain until well into the 19th century.

By modern standards, a piece of eight is a large coin. It measures about an inch and a half across and weighs about the same as three 1 pound coins or four U.S. dollar coins. This particular example is a dullish silver color, thanks to surface corrosion, but when it was freshly minted, it would have glittered and shone.

About 1600, this piece of eight would probably have bought, in modern terms, something like 50 pounds ($80) worth of goods - - practically anywhere in the world.

The coins were made from silver that Spanish explorers found at a mountainous place called Potosi, now in Bolivia. Within a few years of the discovery of these mines, silver from Spanish America began to pour across the Atlantic, growing from a modest 148 kilograms a year in the 1530s to almost 3 million kilograms a year in the 1590s.

It was American silver that made the Spanish kings Europe’s most powerful rulers and paid for their armies and armadas. American silver allowed the Spanish monarchy to fight the French and the Dutch, the English and the Turks. The flow of silver provided rock-solid credit through the direst crises and bankruptcies: It was assumed that next year there would always be another treasure fleet, and there always was.

The production of this wealth came at a huge cost in human life. Young native-American men were conscripted and forced to labor in the mines, where conditions were brutal, indeed lethal. In the freezing high altitude of the mountains, pneumonia was a constant danger, and mercury poisoning frequently killed those involved in the refining process.

The Potosi mint fashioned the silver pieces of eight, which were loaded onto llamas for the two-month trek over the Andes to Lima and the Pacific coast. There, Spanish treasure fleets took the silver up to Panama, where it was carried by land over the isthmus and then across the Atlantic in convoys.

But Spain also had an Asian empire, based in Manila in the Philippines, and pieces of eight were soon crossing the Pacific in huge numbers, too. In Manila, they were exchanged, usually with Chinese merchants, for silks and spices, ivory, lacquer and, above all, porcelain.

The Spanish piece of eight became a foundation stone of the modern world, both prefiguring and making possible the modern global economy.

Credit Card

Since they emerged, credit cards and their kin have become part of the fabric of modern life, making bank credit, for the first time in history, available to people outside the elite.

The modern credit card is an American creation, devised in the credit boom following World War II. First came the Diners Club card, introduced in 1950. Then, in 1958, the BankAmericard, ancestor of Visa, and the first universal credit card issued by a bank and generally accepted by a large number of businesses. But only in the 1990s did credit cards become truly global, widespread beyond North America and the U.K.

Of course, a credit card isn’t itself money, but a way of spending it, moving it and promising it. With credit and debit cards, money has lost its materiality. It can be called up virtually anywhere in the world instantaneously.

And, whereas coins and banknotes are marked with king and country, a card acknowledges no ruler or nation, and no limit to its reach other than an expiration date.

This particular Gold Card is issued by the London-based bank HSBC Holdings Plc (founded by the Hongkong and Shanghai Banking Corporation Limited). It functions through the backing of Visa, the U.S.-based credit association; and has on it writing in Arabic. The card is, in short, part of a global financial system, backed by a complex electronic superstructure that many of us barely think about as we key in our PINs.

Credit cards allow you to borrow while avoiding both the traditional pawnbroker and the loan shark. Easy credit, in turn, undermines traditional values like thrift, because it sets you free from having to save before you spend. Credit cards have drawn the attention of moralists and been categorized as dangerous, even sinful in their very nature.

So it is perhaps surprising that religion is represented on our card. The red fretwork in the middle is Islamic patterning that marks the card as compliant with Shariah law -- including the prohibition of usury.

Most intellectuals and economists from the French Revolution onward -- including Karl Marx -- assumed that religion would steadily dwindle as a force in public life, and that in the long run the forces of God would yield to the forces of Mammon. In the first decade of the 21st century, religion has returned to the center of the political and economic stage in many parts of the world. Our gold credit card is a small, but significant, part of a growing global phenomenon.

(Neil MacGregor is the director of the British Museum and a presenter on BBC television and radio. This is an excerpt from his new book, “A History of the World in 100 Objects,” based on a BBC radio series and a British Museum exhibition, and published by Penguin. The opinions expressed are his own.)

Pimp My Ride

Kannu

I forgot to say that I like your new haircut. But I still think I can give you a better haircut than those poxy hairdressers. One day you will realise the benefits of cutting your own hair, its liberating, it saves a heck of a lot of time, it saves money and best of all, it will manage to upset a whole bunch of women in your life and that's fun. But at this moment, when you are in teenagerhood, hair has a vastly bigger significance. The fate of the world depends upon the hair style. That is fine, that's what the teenaged girls are also looking for. But then when you realise that hair is nothing but a holdover artefact from our evolutionary times to keep us warm (its fur after all), the importance level reduces. What actually matters is what's below the hair rather than the hair itself. Thankfully, you are a smart fellow so I am also happy with that. Remember what I keep on saying, everything evens out, if you have less hair to comb, you have more face to wash.

But that's not the point of this missive, this is about libertarianism. This is the operating philosophy that I follow. There are literally thousands of philosophies out there, and you can judge them on several basis. Here is a very short survey you can do to find out what your operating philosophy is all about.
http://www.theadvocates.org/quiz

Here's what this website defines libertarianism as: Libertarians support maximum liberty in both personal and economic matters. They advocate a much smaller government; one that is limited to protecting individuals from coercion and violence. Libertarians tend to embrace individual responsibility, oppose government bureaucracy and taxes, promote private charity, tolerate diverse lifestyles, support the free market, and defend civil liberties.

I know you are still young, but I hope to raise you and Diya by those principles. We make you take responsibility over your own career and choices, there isnt much bureaucracy other than few things like having to water the garden and to empty the dishwasher, no taxes, you are trained on how to manage your own money and are doing well on your investments, not doing much on the charity side for some strange reason, but we will work on that, we are happy with what you want to do with your lifestyle - girls, whatever, you have had the choice to imbibe in alcoholic drinks (but not ciggies) etc. etc.

Anyway, here is a story about a presidential candidate in the USA and how he is a pure libertarian. Interesting views. Obviously he doesnt have a hope in hell's chance of becoming the president, but those views exist and hopefully the huge overhang of debt that we have will be removed.

Check out the austrian school of economics here, its an interesting read. http://en.wikipedia.org/wiki/Austrian_School
One thing which bothers me is the ability of running this giant ponzi scheme (http://en.wikipedia.org/wiki/Ponzi_scheme) of using debt to pay for today's spending while future generations pick up the bill. At this moment, the amount of debt being racked up by all the bloody governments means that YOU and DIYA will be paying for our mistakes for couple of generations. Learn from our mistakes, son. Never let governments become too big, they steal your money and they steal your liberty. Friedman said this, "If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.". Some more great quotes from him here. http://www.brainyquote.com/quotes/authors/m/milton_friedman.html

Happy reading son.

Love

baba

 

Pimp My Ride
http://www.tnr.com/print/article/representative-ron-paul-2008-republican-primary-president

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The first thing I learned from driving around Nevada with Ron Paul for a couple of days: People really hate the Federal Reserve. This became clear midway through a speech Paul was giving to a group of Republicans at a community center in Pahrump, a dusty town about 60 miles west of Las Vegas. Pahrump is known for its legal brothels (Heidi Fleiss lives there), but most of the people in the audience looked more like ranchers than swingers. They stood five deep at the back of the room and listened politely as the candidate spoke.

Until Paul got to the part about the Fed. “We need a much better monetary system,” he said, a system based on “sound money, money that’s backed by something.” Paul, who is small and delicate and has a high voice, spoke in a near monotone, making no effort to excite the audience. They cheered anyway. Then he said this: “The Constitution gives no authority for a central bank.” The crowd went wild, or as wild as a group of sober Republicans can on a Monday night. They hooted and yelled and stomped their feet. Paul stopped speaking for a moment, his words drowned out. Then he continued on about monetary policy.

Wow, I thought. The constitutionality of a central bank is not an issue you see on many lists of voter concerns. (How many pollsters would think to ask about it? How many voters would understand the question?) Yet a room full of non-economists had just responded feverishly when Paul brought it up. Hoping for some context, I went outside and found a Paul staffer. He didn’t sound surprised when I told him about the speech. “It’s our biggest applause line,” he said.

Our biggest applause line? There are two ways to interpret a fact like that: Either the Ron Paul movement is more sophisticated than most journalists understand, or a lot of Paul supporters are eccentric bordering on bonkers.

One thing you can say for certain: The crowds at Ron Paul rallies aren’t coming to be entertained. Stylistically, a Paul speech is about as colorful as a tax return. He is the only politician I’ve ever seen who doesn’t draw energy from the audience; his tone is as flat at the conclusion as it was at the beginning. There are no jokes. There’s no warm-up, no shout-out to local luminaries in the room, no inspiring vignettes about ordinary Americans doing their best in the face of this or that bad thing. In fact, there are virtually none of the usual political clichés in a Paul speech. Children may be our future, but Ron Paul isn’t admitting it in public.

Paul is no demagogue, and probably couldn’t be if he tried. He’s too libertarian. He can’t stand to tell other people what to do, even people who’ve shown up looking for instructions. On board the campaign’s tiny chartered jet one night (the plane was so small my legs were intertwined with the candidate’s for the entire flight), Paul and his staff engaged in an unintentionally hilarious exchange about the cabin lights. The staff wanted to know whether Paul preferred the lights on or off. Not wanting to be bossy, Paul wouldn’t say. Ultimately, the staff had to guess. It was a long three minutes.

Being at the center of attention clearly bothers Paul. “I like to be unnoticed,” he says, a claim not typically made by presidential candidates. “That’s my personality. I see all the excitement and sometimes I say to myself, ‘Why do they do that?’ I don’t see myself as a big deal.” Ordinarily you’d have to dismiss a line like that out of hand—if he’s so humble, why is he running for president?—but, in Paul’s case, it might be true. In fact, it might be the key to his relative success. His fans don’t read his awkwardness as a social phobia, but as a sign of authenticity. Paul never outshines his message, which is unchanging: Let adults make their own choices; liberty works. For a unified theory of everything, it’s pretty simple. And Paul sincerely believes it.

Most Republicans, of course, profess to believe it too. But only Paul has introduced a bill to legalize unpasteurized milk. Give yourself five minutes and see if you can think of a more countercultural idea than that. Most people assume that the whole reason we have a government is to make sure the milk gets pasteurized. It takes some stones to argue otherwise, especially if nobody’s paying you to do it. (The raw-milk lobby basically consists of about eight goat-cheese enthusiasts in Manhattan, and possibly the Amish.) Paul is pro-choice on pasteurization entirely for reasons of principle. “I support the right of people to drink whatever they want,” he says. He mocks the idea that “only government can make sure we’re safe, so we need the government to protect us. I don’t think we’d all die of unsafe food if we didn’t have the FDA. Someone else would do it.” If you know Ron Paul primarily from watching the Republican debates, you probably assume he spends most of his time ranting about September 11 and the Iraq invasion. In fact, his real passion is Austrian economics. More even than the war, Paul despises paper currency, which he considers a hoax, “fiat money.” He can become emotional talking about it. Caught in traffic in downtown Vegas on the way to an event, Paul looked out the window at the casinos and mused aloud: “Can you imagine when all those slot machines used real silver dollars? All that silver … ” His words trailed off, as in a pleasant daydream.

Paul trusts coins, and he has bought them all his life, first as a childhood collector, then as an investor. During the 1980s, as he ran unsuccessfully for the Senate and the White House, he became involved in a coin business, Ron Paul Coins. Numismatics, he says, is a labor of love. “You only make five or ten dollars a coin. You’ve got to sell a lot of coins to get rich. I was just promoting something I believe in.” It’s a rare person who admits something like this. Everybody knows the gold standard is for cranks. It’s complicated, unwieldy, and basically incompatible with the modern world. Worse, it’s boring. Paul doesn’t care. “It’s been over one hundred years since that issue has been talked about in a presidential election,” he told me with apparent pride.

Over dinner at the coffee shop in the Saddle West Hotel, Casino, and RV Resort, Paul and his staff talked about little else. There were eight or nine of us at the table, with the 72-year-old obstetrician-congressman at the head in a gray suit, working over a chicken platter and discussing hard money. It had the feel of a familiar conversation, a dialogue that doesn’t really end but that never diminishes in intensity. At one point, Paul’s assistant checked his BlackBerry for the latest gold and silver prices and read them aloud to the table.

For Paul, the original sin in monetary policy took place in 1933, when FDR uncoupled the currency from gold. This removed limits from federal spending, allowing Congress an endless supply of money it could print at will, while leaving citizens vulnerable to the inflation that inevitably resulted. But, worst of all from Paul’s point of view, it was compulsory. Private currencies are forbidden, so Americans had no choice but to participate. The whole system is a mandatory Ponzi scheme, built on faith in the government. Except that, now that the bottom has dropped out of the dollar, it’s clear there’s no reason to have faith in the government or its money.

That’s Paul’s essential argument. His solution: allow competing currencies.

If individuals want to circulate gold or silver coins (or scrip backed by metal reserves), let them. Give citizens the chance to decide which money they trust.

The owners of NORFED, an Indiana coin company, gave it a shot. The company minted and sold thousands of silver Ron Paul dollars, complete with the candidate’s face in profile, before federal agents showed up in November and confiscated their entire remaining inventory. In its affidavit for a search warrant, the FBI accused NORFED of trying to “undermine the United States government’s financial systems by the issuance of a non-governmental competing currency for the purpose of repealing the Federal Reserve and Internal Revenue Code.” That may be a crime, but it’s also pretty close to Ron Paul’s stump speech.

It’s hard to think of a presidential candidate who’s ever drawn a coalition as broad as Ron Paul’s. At any Paul event, you’re likely to run into self-described anarcho-capitalists, 9/11-deniers, antiwar lefties, objectivists, paleocons, hemp activists, and geeky high school kids, along with tax resisters, conspiracy nuts, and acolytes of Murray Rothbard. And those are just the ones it’s possible to categorize. It’s hard to say what they all have in common, except that every one is an ideological minority—or, as one of them put it to me, “open-minded people.” To these supporters, Paul is a folk hero, the one person in national politics who doesn’t judge them, who understands what it’s like to be considered a freak by straight society.

Which is odd, because, in person, Paul doesn’t seem like a freak. He seems like someone’s grandfather. I first met up with Paul after a rally at University of Nevada, Las Vegas. He apparently hadn’t known I was coming but accepted my arrival with Zen-like calm, welcoming me into the seat next to him in the minivan and offering me baked goods from a plate on his lap. We were both finishing our brownies when he mentioned they’d been baked by a supporter. I stopped chewing. Where I work, this is a major taboo (Rule One: Never eat food sent by viewers), and my concern must have shown. Paul grinned. “Maybe they’re spiked with marijuana,” he said.

If so, it would have been his first experience with illegal drugs. Though Paul argues passionately for liberalizing marijuana laws and is beloved by potheads (Timothy Leary once held a fund-raiser for him), he has never smoked pot himself. He sounded shocked when I asked him. “I have never seen anyone smoke marijuana,” he said. “I don’t think I’d be open to using it.” For some people, libertarianism is the philosophical justification for a zany personal life. Paul, by contrast, describes his hobbies as gardening (roses and organic tomatoes) and “riding my bicycle.” He has never had a cigarette. He doesn’t swear. He limits his drinking to an occasional glass of wine and goes to church regularly. He has been married to the same woman for 50 years. Three of their five children are physicians.

Ron Paul is deeply square, and every bit as deeply committed to your right not to be. “I don’t gamble, but I’m the gambler’s best friend,” he says, boasting of his support for online casinos. He is a Second Amendment absolutist who doesn’t own a gun. “I’ve only fired one a couple of times in my life. I’ve never gotten around to killing anything.” It’s an impressively, charmingly principled world view, though sometimes you’ve got to wonder how much Paul has in common with many of the people who support him.

Before we left the speech in Pahrump and headed across the state, I’d called a friend of mine in Carson City named Dennis Hof. Dennis owns the Moonlite BunnyRanch, probably the most famous legal brothel in the country and the setting for an HBO series called “Cathouse.” Dennis isn’t very political, but he’s smart, and I suspected he might lean libertarian. I told him Ron Paul was speaking the next morning in Reno. He said he’d drive down to see it.

I wasn’t planning on showing up at Paul’s press conference with a bordello owner and two hookers, but unexpected things happen on the road.

I’d arrived with the campaign at the Best Western Airport Plaza Hotel in Reno at two in the morning the night before, and, at some point while I was sleeping, the power in the hotel went out, disabling my alarm. By the time I woke up, Paul and his staff had left. So I called Dennis for a ride. He was there in ten minutes, in an enormous stretch limo with a BunnyRanch logo on the side. He’d brought two of his girls, Brooke and Air Force Amy, as well as his driver, a middle-aged man in a cowboy hat and Western wear. It was a conspicuous group.

Probably because they didn’t fully understand who I was coming with, the Paul people waved the limo through a roadblock outside the auditorium and brought us in through the loading dock. A Paul aide informed us that press conferences are for press only. That’s us, said the girls, and we walked right in.

The other, actual journalists looked confused. Dennis is built like a linebacker and was dressed entirely in black. Brooke and Air Force Amy looked like hookers because they are. All three slapped on Ron Paul stickers (“we could use these as pasties,” Air Force Amy said, giggling) and sat near the front. Pretty soon, Paul showed up and did his 15 minutes on liberty and Austrian economics. If he noticed there were prostitutes present, he didn’t show it.

The first time I heard Paul talk about monetary policy, I’d felt like a hostage, the only person in the room who didn’t buy into the program. Then, slowly, like so many hostages, I started to open my mind and listen. By the time we got to Reno, unfamiliar thoughts were beginning to occur: Why shouldn’t we worry about the soundness of the currency? What exactly is the dollar backed by anyway? And, if the gold standard is crazy, is it really any crazier than hedge funds? I’d become Patty Hearst, ready to take up arms for the cause, or at least call my accountant and tell him to buy Krugerrands. I looked over at Dennis and the girls. They looked like they might be having the same thoughts.

Once the press conference ended, Paul left to do interviews with local TV reporters. Dennis and the girls stood at the podium and had their pictures taken under the Ron Paul sign. Air Force Amy hammed it up. What I really want more than anything, she told me, is to get my picture taken with Dr. Paul. She meant it.

I considered trying to explain to her that I was not actually affiliated with Ron Paul, merely writing about him for a political magazine back in Washington. But I didn’t. Instead, I led all three of them into the back room where Paul was doing his interviews.

Paul was talking on camera and never saw us. But his staff was on high alert. They looked more uncomfortable than I have ever seen a campaign staff look. Air Force Amy didn’t appear to notice. Dressed in red, her Dolly Parton hairdo and 36DDs at full attention, she sidled up to Lew Moore, Paul’s campaign manager, and made her pitch. “Hi,” she said. “I’m Air Force Amy, and I’d like a picture with Ron Paul.” I knew right away it wasn’t going to happen. “I’ve got a concern, I’ve got to be honest,” Moore said, tense but trying to be nice. “If that picture surfaces, it could be very damaging to him politically.” Dennis stepped in to take up Air Force Amy’s cause, but Moore wasn’t budging. “The mainstream in the early primary states is not moving in that direction,” he said.

I really thought Air Force Amy was going to cry. She looked crushed. Like a child of alcoholic parents, she immediately started to rationalize away the pain. “It wasn’t Ron’s decision,” she told Moore. “It was yours. So I can’t take it personally.” But it was obvious that she did. It was awful. There wasn’t much left to say, so Dennis and the girls and I left and went downtown to a casino for pancakes. There were no hard feelings. They wore their Ron Paul stickers all through breakfast. If I’d had one, I would have worn it too.

Tucker Carlson is an anchor on MSNBC.

This article originally ran in the December 31, 2007 issue of the magazine.

Mishraism gets a slam

My ferociously erudite and diabolically brilliant friend, Salil Tripathi knocks the socks off a rather strange whiney article on India and China’s progress written by that strange character, Pankaj Mishra. I have to admit, I have yet to understand why he is rated that well, I mean, d’oh. Anyway, Salil writes back to the Mishra article. I quote this:

To put Indian growth in perspective: when it grew at 7.5% last year, India's income rose by an amount higher than the total income of Portugal ($194 billion), Norway ($183 billion), or Denmark ($178 billion) that year. It was the equivalent of adding a rich country's economy to a very poor one. More important, India has reduced the number of people living in abject poverty, even though its population has increased significantly. Once again, facts: In 1991, 36% of India's 846 million people, or a little over 304 million people, lived on less than one dollar a day, the measure economists at the World Bank use to define absolute poverty. That number - of 304 million people - represented possibly the highest-ever agglomeration of poor people in the world in one country at any time. Ten years later, the proportion of India's poorest dropped to 26% - a decline not only of 10 percentage points, but also in absolute terms. By 2006, India's population had risen to 1.02 billion people. If the proportion of poor is still at 26%, it means 267 million people now lived in absolute poverty. What it also means is that even though India added 156 million more people to its population during that decade - a figure combining the total populations of Britain, France and Spain put together - during that period, the number of poor people in India actually fell by 37 million, or the size of Poland. Had the poverty level remained the same, there would have been 361 million poor in India. Instead, the Indian economy had lifted 94 million people out of absolute poverty during that period - that's 12 million more people than the entire population of Germany, the most populous state in the European Union. Such growth would simply have not happened if India had not put in place macroeconomic changes in 1991.

People who moan about inequality need to understand that there is no crime or problem in people being rich. its when the poor remain or are kept poor is where the problem starts. Here are some of my responses about inequality here, here.

Then Mishra responds to Salil’s note here. Now besides the economic fallacies he exhibited in his first post, he now adds historical incoherence to his post, which Salil takes apart in the rejoinder to the rejoinder here. If nothing else, Mishraji, try to simplify your language. See these 2 statements:

1. Old assumptions of moral and civilizational superiority shape the neo-liberal view of Chinese and Indian history, in which the Indians and Chinese appear as deluded socialists and famine-struck peasants, who could only have been saved by western-style neo-liberalism.

2. I can only mention one here: the challenge of postcolonial reconstruction in countries devastated by war and colonialism, in a harsh geopolitical situation which forced ruling classes everywhere to choose sides in the cold war

Say what?

bah!, and seems like Mishraji gets slammed in other areas as well. Here’s another book review kerfuffle that he got involved in and the book’s author poked him

The world in 2050

My bank released a report on what will happen in 2050. Here’s the summary

With the rapid growth of the emerging markets, the global economy is experiencing a seismic
shift. In this piece, we argue that this shift is set to continue. By 2050, the collective size of the
economies we currently deem 'emerging' will have increased five-fold and will be larger than
the developed world. And 19 of the 30 largest economies will be from the emerging world.
At the same time, there will be a marked decline in the economic might – and potentially the
political clout – of many small population, ageing, rich economies in Europe.

Anyway, I sent the report on to my son when i realised something interesting. Here’s what i said:

Kannu
this report tries to predict what will happen in 2050. In other words, you will be about as old in 2050 as I am now in 2011. You might want to have a quick look through it as you will worry about your children then as we are worrying about you now and Dadu worries about me.

How time flies, eh? I will most probably be dead when 2050 comes along, based upon the life expectancy and the pretty heavy body destruction i did, lol. So this is what we will leave behind for our kids. Here’s another longer article which talks about the study.

HSBC sees China and America leading global mega-boom

The greatest global boom of all time has barely begun. Over the next forty years, economic growth will quicken yet further as the rising powers of Asia, the Middle East, and Latin America reach their full stride

In a sweeping report entitled "The World in 2050", HSBC said China at $24.6 trillion (constant 2000 dollars) and the US at $22.3 trillion will together tower over the global economy.

By Ambrose Evans-Pritchard 6:00AM GMT 05 Jan 2011

Crunching everything from fertility rates to schooling levels and the rule of law, HSBC predicts that the world's economic output will triple again by 2050, provided the major states can avoid conflict - trade wars, or worse - and defeat the Malthusian threat of food and water limits. Growth will rise to 3pc on average, up from 2pc over the last decade.

In a sweeping report entitled "The World in 2050", the bank said China would snatch the top slot as expected, but only narrowly. China at $24.6 trillion (constant 2000 dollars) and the US at $22.3 trillion will together tower over the global economy in bipolar condominium - or simply the G2 - with India at $8.2 trillion far behind in third slot, and parts of Europe slithering into oblivion.

Turkey will vault past Russia, settling an Ottoman score. Egypt, Malaysia and Indonesia will all move into the top 20. Muslim societies may start to reassert an economic clout unseen since the late Caliphate. Yet Brazil may disappoint again, stalling at 7th place in 2050 as its birthrate slows sharply and bad schools exact their toll.

The surprise is how well the Anglo-Saxon states hold up under HSBC's model, which is based on the theoretical work of Harvard professor Robert Barro. America's high fertility rate (2.1) will allow it too keep adding manpower long after China's workforce has begun to contract in 2020s and as even India starts to age in the 2040s.

An eightfold jump in the per capita income of China and India will keep growth brisk despite demographic headwinds, but they will not come to close to matching US living standards. Americans will be three times richer than the Chinese in 2050.

Britain at $3.6 trillion also fares well, slipping one rank to sixth place but pulling far ahead of Italy and France, and almost displacing Germany as Europe's biggest economy. This is chiefly due to the UK's healthy fertility rate (1.9), although sceptics might question whether a birthrate inflated by the EU's highest share of unmarried teenager mothers is a good foundation for prosperity.

The low fertility of Korea (1.1), Singapore (1.2) Germany (1.3), Poland (1.3), Italy (1.4), Spain (1.4) and Russia (1.4), more or less dooms these countries to aging crises and population decline unless they open the floodgates to immigration.

Japan is already deep into this phase of atrophy, explaining why the country has had such trouble shaking off the effects of the Nikkei bust. Its total population began contracting outright since 2005. It shed a record 120,000 last year, and will shrink 37pc by 2050.

"Demography matters," said Karen Ward, the report's chief author. The "big losers" are the smaller states of Switzerland, Netherlands, Sweden, Belgium, and Austria, which will mostly drop out of the top 30. "They may struggle to maintain their influence in global policy forums," she said.

HSBC works from the assumption that mankind will avoid the energy crunch and overcome the eco-deficit, a term used to describe the world's depletion rate of non-renewable assets. It calls for $46 trillion of investments in alternative forms of energy to break out of the carbon trap, and head off a supply crisis that could derail growth.

Feeding the world may be harder. The UN expects food demand to rise 70pc by 2050, yet the yield growth of crops has slowed to 1.5pc a year from 3.2pc in the 1960s. The number of people living in areas experiencing "severe water stress" will double from a third of the world population to two thirds between 1995 and 2025. The water basins irrigating the crops of the North China plain are being exhausted at an alarming rate.

HSBC admits that it economic projections are based on a "rather rosy scenario". Yet one thing seems clear. As superpowers of world food output, the US and Canada are sitting pretty.

Beware of Greeks bearing change?

Having had the pleasure of working in Greece for many months at a bank, I have an attachment to that lovely country. It is a great country, great food, great people, great architecture, wonderful history and just tickety boo in all respects. In fact, I was thinking at that time of retiring there but then I came to know and love Italy, but that is for another post. Therefore, when I read about Green suffering macro-economic challenges, it is obviously of interest to me.

Greece, as you might have read, is facing severe financial deficits. I do not want to go into the details of the history behind how Greece got into trouble but suffice to say that it told a few porkies to get into the Euro and then it has gone downhill ever since. Here is a good overview of the crisis. The deficit is out of control, the public finances are a disaster, growth is anemic, corruption rife and its competitiveness is very weak. Combine this with a rather dysfunctional political maturity and what you have is a full-blown national crisis.

So what do you do? Well, depends upon which side of the economic rail tracks you are, some believe that you need a bit more assistance from the other Euro zone countries or from the IMF. Cut public spending, improve statistical data collection and publication / governance, improve competitiveness, etc. etc. The new government has promised to cut the deficit and improve growth. But here is the problem which interests me. The markets simply do not believe that the government can do this.

One of my teachers once told me this. “We judge ourselves by what we think we are capable of doing while others judge us by what we have done”. This applies to us as individuals and as well way up to national governments. What about for those who are deep in the weeds doing projects? I sometimes think that we are no different from the old style prophets who through a combination of doom and gloom sticks plus a heavy dose of eternal salvation carrots come up with a project plan (10 commandments, Quranic rules, etc.) to get there.

But just like what happened to Greece, how do we make sure that people believe in the fact that we are going to get there? Everybody has different ways of doing this, but I prefer to have a good agreed scope / benefits / objectives document, clear transparent project plan, a good governance around it, clear links between the actions and the resources (responsible, accountable, informed, communicated), solid risk and issue management and the financial bits. While nobody knows the future accurately, to engender belief, one has to show that we have put in place these measures and are open and transparent on our progress, problems and issues.

I have seen projects which do not have identified risks and issues and that fill me with dread. After ruling out the presence of divinity (as only heavenly creatures do not commit mistakes, have issues and risks), one has to regretfully conclude that the project will face significant problems because risks and issues are not being identified.

Look what happened when the Greek PM announced its plans. Immediately the market said, sorry, mate, do not believe you. The cost of insuring against Greek debt is now the highest ever. In my opinion, this is because the government is not transparent with the economic data, the plans to achieve the objectives are seriously flaky, the issues and risks not laid out nor are the management actions to deal with them. Over here in the UK, Nick Clegg, the leader of the Liberal Democratic Party says that we have to do the same thing for the UK as well. Unfortunately, the political calendar dictates that transparency is a fond hope and rigorous macro-economic planning and execution has to wait. In the meantime, the market is judging us by what we have done.